Soon after the Govt. announced the plan to revive the Real Estate sector with a fund of Rs 25k crores, ICICI, the largest lender to the infra sector till 2013, has decided to reorganize by putting the lid on its Project Finance Dept. The slack market and it’s shifting focus on retail banking pushed ICICI for this move.
Crux of the Matter
ICICI, encompassed by the sluggish growth, decided to transfer employees in the Project Finance Dept. to other departments, reorganizing the firm’s focus on retail banking and unsecured loans.
The slowdown can be interpreted from the downturn of Rs. 52,135 crore of outstanding credit by scheduled commercial banks to the infrastructure sector.
Asset-Liability mismatch – acquiring short term funds for long-term projects, NPA’s or bad loans, and time delay in getting statutory permits are the issues haunting this sector.
ICICI had reported a 28% drop in its net profit for the quarter ended September, while its gross NPA’s stood at 6.37%.
Curiopedia
Asset-Liability Mismatch – Another factor believed to contribute to financial crises is asset-liability mismatch, a situation in which the risks associated with an institution’s debts and assets are not appropriately aligned. For example, commercial banks offer deposit accounts which can be withdrawn at any time and they use the proceeds to make long-term loans to businesses and homeowners. The mismatch between the banks’ short-term liabilities (its deposits) and its long-term assets (its loans) is seen as one of the reasons bank runs occur. Likewise, Bear Stearns, a New York-based Investment firm, failed in 2007–08 because it was unable to renew the short-term debt it used to finance long-term investments in mortgage securities. Read More
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